In this article we use the words annual report and financial statements. Both refer to the same annual accounts of a company.
If the board of a private limited company files the annual report with the trade register too late, the board runs the risk of being held liable. The board therefore has an interest in publishing the financial statements on time. What are the deadlines? And what must be recorded in the financial statements?
Contents of financial statements
In principle, financial statements consist of:
- the balance sheet with notes;
- the profit and loss account with notes;
- and possibly the consolidated financial statements (one joint financial statement of a group).
Which information must be included in the annual report depends on the size of the business (the financial statement regime).
What financial statement regimes are there?
- Micro enterprises
- Small enterprises
- Medium-sized enterprises
- Large enterprises
An enterprise qualifies as a micro enterprise if two or three of the following requirements are met on two consecutive balance sheet dates:
- Balance sheet total maximum € 350,000
- Net turnover maximum € 700,000
- Maximum of 10 employees
The micro enterprise has the same benefits as a small enterprise, which is explained below plus the benefits below:
- The preparation of an abridged balance sheet and profit and loss account is permitted
- Accruals insofar as they relate to other operating expenses no longer need to be shown in the balance sheet
- Notes to the balance sheet no longer need to be prepared, this information may appear in limited form below the balance sheet
A company qualifies as a small enterprise if two or three of the following requirements are met on two consecutive balance sheet dates:
- Balance sheet total maximum € 6,000,000
- Net turnover maximum € 12,000,000
- Maximum of 50 employees
The small enterprise has the following advantages:
- No annual management report needs to be written. This is the management report in which the board reports on financial and non-financial data.
- Limited notes to the financial statements are allowed
- If the company is part of a group, there is an exemption for preparing consolidated financial statements
- The preparation of an abridged balance sheet and profit and loss account is permitted
- No mandatory audit is applicable
A company qualifies as a medium-sized enterprise if two or three of the following requirements are met on two consecutive balance sheet dates:
- Balance sheet total maximum € 20,000,000
- Net turnover maximum € 40,000,000
- Maximum of 250 employees
An enterprise qualifies as a large enterprise if two or three of the following requirements are met on two consecutive balance sheet dates:
- Balance sheet total above € 20,000,000
- Net turnover above € 40,000,000
- More than 250 employees
Preparing the financial statements
The board is responsible for preparing the financial statements. Even if only one director actually prepares the financial statements, the entire board nevertheless remains responsible.
By law, the board of a limited liability company must prepare the financial statements within 5 months of the end of the fiscal year. In practice, preparing the annual accounts usually means that the company’s accountant draws up the annual accounts and submits them to the board.
The prepared financial statements must be signed by all directors; all directors are responsible. The supervisory directors – if there are any – must also sign the financial statements. If a signature is missing, the reason must be stated.
In many cases, the board fails to meet this 5-month deadline. Fortunately, the law provides that the general meeting (the general meeting of shareholders) may extend this deadline “based on special circumstances.” Those “special circumstances” do not entail much. It is sufficient that the general meeting decides to agree to extend the deadline because the financial statements are not yet ready.
Incidentally, it is not necessarily necessary for the general meeting to meet no later than 5 months after the end of the fiscal year and pass a resolution that the board be given another deadline to prepare. The Supreme Court has ruled that it is not important whether the decision to extend the term was taken in a formally correct manner. The decision can also be made after the fact.
Adopting the financial statements
The law states that the financial statements are adopted by the general meeting. By adoption, the result of a fiscal year is established, allowing a resolution to distribute profits. Therefore, if the financial statements have not been adopted, no profit may be distributed.
The law does not specify a deadline for this, but the law does state that the company must have published the annual accounts no later than 12 months after the end of the financial year. This means that the board must file the 2022 financial statements with the trade register within 12 months, i.e. no later than December 31, 2023.
This means that a timely general meeting must be held at which a resolution to adopt the financial statements must be passed.
However, the general meeting is not obliged to adopt, but can also decide that the board should revise the financial statements. The general meeting cannot amend the financial statements on its own.
Convening the general meeting.
The management board, or the supervisory board, must convene the shareholders’ meeting and send a notice with an agenda to all those entitled to attend, including shareholders and holders of depositary receipts (with voting rights).
Such notice must be given no later than the eighth day prior to that of the meeting. If the meeting is scheduled for December 31, 2023, the notice must be sent no later than December 24, 2023. There must be at least 7 days between the day of the notice and that of the meeting.
Notice must be given by letters of convocation addressed to the addresses of those entitled to attend the meeting. The letters do not have to be sent by registered mail, it is prudent. The notice may also be sent by e-mail, if the relevant meeting holder has made this known to the company. Please note that since the directors and supervisory directors have an advisory vote, they must also be summoned.
The sanction for failure to comply with the notice requirements is that the resolution can be annulled. So-called extrajudicial annulment is not possible; annulment must be sought in court.
However, if the deadline is not observed, a valid resolution can still be passed if all those entitled to attend the meeting have agreed to the decision and the directors and supervisory directors have been given the opportunity to give their opinion.
One of the agenda items that must be included in the notice of meeting is the adoption of the relevant annual accounts. The adoption of the financial statements does not mean that the directors and supervisory directors are simultaneously granted discharge; that must be a separate agenda item and a separate resolution.
The management board must ensure that the prepared financial statements, together with the management report, are available for inspection by the shareholders and other persons entitled to attend meetings at the company’s office from the time the general meeting is convened.
A resolution to adopt outside a meeting
If all shareholders are also directors, the signing of the financial statements by all directors (and supervisory directors) is also regarded as adoption by the general meeting. A separate meeting no longer needs to be held to adopt the financial statements. With the signing of the annual accounts, discharge is also granted.
However, the law provides that the articles of association may exclude this manner of adopting the annual accounts. In that case, the ordinary deadlines apply.
Publishing the annual accounts
The law provides that the board of the BV must publish the annual accounts within 8 days after their adoption by the general meeting; publication means: filing them with the trade register.
For example, if the general meeting adopts the financial statements for 2022 on December 10, 2023, the financial statements must be filed no later than December 18. If the general meeting adopts the financial statements on December, 31, there is no longer an 8-day deadline. It follows from the law that the board must publish the 2022 financial statements no later than 12 months after the end of the fiscal year. Therefore, if the general meeting adopts the financial statements on December 31, the financial statements must be filed on the same day. An additional 8-day deadline then does not apply: December 31 is the deadline for filing.
For the director-major shareholder, as mentioned above, the 2023 financial statements must be filed no later than November 8.
What must be filed?
What information must be in the financial statements that must be filed is related to the size of the company. Depending on the size, an abridged or simplified balance sheet, a comprehensive income statement, with or without notes must be filed.
Companies in the micro or small class can now only file financial statements digitally.
A “provisional” financial statement
The general meeting is not formally required to adopt the annual accounts within the specified time limits. However, the management board of a BV does have an interest in ensuring that the financial statements are made public in a timely manner in order to avoid liability.
Therefore, if the general meeting does not adopt the financial statements or does not adopt them on time, the board must still file the prepared, but not yet adopted, financial statements for 2022 by December 31; these are then the “provisional” financial statements.
If the general meeting does not adopt the financial statements for 2022 by December 31, 2023, the board must nevertheless file the prepared but not adopted financial statements by December 31, 2023.
The main sanction for not filing on time is that directors and supervisory directors risk being held personally liable in the event of bankruptcy. The law provides that if the management board fails to file financial statements on time, it is established that the management board has not performed its duties improperly. In that case, the legal presumption applies that that improper performance of duties was a major cause of the bankruptcy.
This applies up to three years after the failure to file on time. A far-reaching consequence, therefore. This does not apply if a board member makes it plausible that other circumstances were the cause of the bankruptcy and therefore not the manifestly improper performance of duties.
Failure to file on time is also an economic offence punishable by a fine of €22,500.